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Team 1

Venkata Ramya Kolluru (9058)

Sri Prasanna M (9111)

TATA Motors - Jaguar & Land Rover

Acquisition Expert plan


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Introduction

Financing the acquisition

SWOT

Challenges to TATA

Reasons to acquire

Why should the deal work?

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Belongs to TATA group 150 year old

Previously Tata Engineering and Locomotive company, Telco

Listed on the NewYork stock exchange in 2004

Tata Motors is the Indias largest automobile company

It is the leader in commercial vehicles and the second largest in

passenger vehicles

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A statement of ultra luxury

Rarely advertised

Fords Formula One entry since 1990s

Known for superior off-road performance

Used by military for projects and expeditions

Safe but less reliable

Land Rover has a presence in 147 countries, Jaguar has a

presence in more than 80 countries

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52%

27%

11%

10%

EuropeUS

Asia pacific

ROW

Source: Annual reports, Emkay research


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TATA Motors

Revenue $7.2 billion in 2006-07

Ford

(in Rs. cr) Mar '05 Mar '06 Mar '07

Net sales 17,199.17 20,088.63 26,664.25

Reported net profit 1,236.95 1,528.88 1,913.46Debt Equity Ratio 0.61 0.53 0.59

Source: moneycontrol.com

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( In milliondollars)

2007 2006 2005 2004

revenues 172,455 160,065 176835 166040

Net Income (2,723) (12,613) (1,440) (3,038)


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711/10/2010

Source: IBS Research center report


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811/10/2010

Source: IBS Research center report


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911/10/2010 Source: IBS Research center report


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3 ways:

Existing Cash reserves

Have cash pile of over Rs.6000 crores ($1.2 bn) and generated free cash

of over Rs.1000 crores during FY07 Debt (loans from banks, issuing debt securities)

Low interest rates (5%) are available because of recession

Debt to equity ratio is low 0.59 (can raise more funds). Low leverage of the

auto business provides funding flexibility

Equity (issuing of shares)

Being a well established company, funds can be raised both in domestic

and overseas market as the company is performing well.

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TATAs are maintaining a debt to equity ratio around 0.57 for

the last 4 years, we assume that they would desire to maintain

same ratio in future also.

It can go for financing: $ 1.8 bn of equity

$ 1.026 bn of debt

Remaining amount through cash reserves

If the company is not able to raise equity before acquisition it

can go for short term debt (bridge loan), which can be repaidwith equity raised in latter part of acquisition.

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Strengths

Tatas strong management

capability

Strong monetary base to invest

Weakness

Jaguars declining sales

record

Inexperience in handling

such luxury brands

Opportunities

Support from Ford in terms

of Technology, engine, IT,

Accounting Adding up of luxury brands in

the product line

Access to European market

Threats

Strong presence of

competitors like Mercedes,

B

MW, Lexus

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Marketing the product against stiff competition.

TATAs presence only in low and mid car segments.

TATAs stand for: Reliability, value for money Trust etc. How do

they keep up with JLR? Acquisition during recession in US and Europe which contributes

88% of revenues of JLR.

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Long term Strategic commitment to automotive sector

Reduce company's dependence on the Indian market, which

accounts for 90% of its sales Opportunity to venture into luxury car market.

Increased business diversity across markets and products

Land rover provides a natural fit for TMLs SUV segment

Jaguar offers a range of performance/ high-Tech vehicles tobroaden the portfolio

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Ensuring global presence.

Reduced Interest rates in India due to recession.

Great opportunities in US and UK market after recession.

Rising incomes and brand consciousness in India also. JLR brings with it advanced R&D facilities and qualified

manpower which will assist TML in development and patenting

of new technology

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Ford Tata Motors Losses at Jaguar(2006): $715 Mn

(Jaguar a dog in BCG matrix)

Opportunity to participate in 2 fast

growing auto segments & act on

strategy of internationalization

Ford fails to bring down productioncosts

Land rover: natural fit for TMLs SUVsegment

Jaguar: luxury vehicles broaden the

brand portfolio

Combines J+LR Benefits from component sourcing,

design services and low costengineering

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0

Source: www.businessweek.com/globalbiz/cantatarevupjaguar


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100% stake in Jaguar &

land Rover Business

TAMO has acquired the business & initially they will be

operated independently of the partner.

3 Plants in UK These are well invested plants

2 advanced design &

engineering center

4-5000 engineers engaged in testing ,prototype design

& powertrainEngineering , development & integration

26 National sales company Both existing national sales companies of jaguar/land

rover & also those that are carved out of current Fordoperation

Intellectual property rights This covers all key technologies to be transferred to JLR &

perpetual royalty free license on technologies sharedwith Ford

Capital Allowance A minimum guaranteed amount of $1.1 bn which willhelp managing in Tax going forward

Support from Ford Motor

Credit

Ford Motor Credit will continue to support the sales of

JLR for around next 12 months

Pension Contributed by

Ford

Ford will contribute $ 600 mn of the Pension Fund

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Tatas will keep JLR separate

Marketing and Technology

Luxury is where the money is

The deal will not be too expensive Have previous experience of acquisition of Tetley, Tyco etc

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The Tata strategy is essentially a top-down strategy. You can

acquire the image of a high quality, manufacturing facilities of

high quality, you don't acquire liabilities, but brand assets."

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Every noble acquisition is attended with its risks; he who fears to

encounter the one must not expect to obtain the other- Pietro Metastasio

Hubrius hypothesis- Corporate takeovers generate positive

gains, that target firms shareholders benefit and that bidding

firms shareholders do not loose.

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